The purpose of this study is to explore combination of optimal capacitor placement and network reconfiguration for power loss reduction in Geferssa distribution system. A distribution system’s network carries electrical energy from the substation and delivers it to the end-user customers. Technical power loss in distribution system is high due to low voltage level and high flowing current in the distribution system. Thus, it is important to reduce losses of the power system in general and distribution system in particular. Even if there are different methods in reducing technical power loss of distribution system; this thesis studies combination of optimal capacitor placement and network reconfiguration for power loss reduction, voltage profile improvement and cost minimization in distribution system. In this thesis, Loss Sensitivity Factor (LSF) and minimum line current reduction (MLCR) method is used to solve capacitor placement and network reconfiguration problem respectively. To achieve this objective, the existing distribution system of Geferssa 132/15 KV distribution system is modeled by using DigSilent power factor software and simulation is carried out for balanced operation conditions. The total loss of the existing system is 3.96MW at peak load of all feeders in distribution system. The total loss has reduced as following; capacitor placement decreases 1.43MW, network reconfiguration decreases 1.13MW, the combined effect of both capacitor placement and network reconfiguration decreases 1.78MW. Simulation result shows that the results of combined effect of both capacitor placement and network reconfiguration are more effective than considering them separately. Therefore, the total active power losses of the distribution system are decreased from 3.96 MW to 2.18 MW (power loss saved is 1.78MW) or 44.9%.